This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on June 5, 2017.
Weekly Cattle Commentary 06/02/2017
Of course, 24 hours after I say “excluding an unforeseen fundamental game changer, the highs for 2017 are probably in” we get an unforeseen game changer in India banning meat exports. Keep in mind this is a self-prescribed ban based on religion, with fierce battles already being fought in the courts and government.
Short bought packers pushed cash sales for last week to 136-137$, 4 to 6$ higher than the prior week. Dressed sales occurred up to 217$. Basis is 5-6$ over the June Live board. Estimated weekly slaughter through Friday was 550K head, 23K larger than the same week last year. Box prices in the PM report where 245.24 choice, and 218.06 select. The 27$ spread is an indication of how difficult it is to buy a fully finished fat animal.
The week ending May 20th showed steer carcass weights flat versus the prior week at 836#, 26 pounds under last year. The USDA has that sharply below the 5 year average.
After struggling for nearly a month, weekly beef export sales were 12100 MT for the week ending May 25th. Up 69% from the prior week and 15% from the 4 week average. The dollar, now at 5 month lows, is helping to offset the rise in box prices.
June Live significant support around 120.50 held, and with help from India, broke out higher. Friday saw a gap higher, with a close near the top of the range. June is 3$ from the yearly high, with a very strong chart read at the moment. I would look for June to narrow the spread with cash. Seasonals are generally supportive. The 6$ spread cash holds over June futures should be supportive.
Feeder Cattle Green grass and positive feeder margins are supportive to the feeder market, especially light cattle. The CME feeder cattle index is at 138.05. The index is now about 1$ under April Feeders. Break evens are getting tough to work if the market strength doesn’t continue.
Feeder Cattle Positive feeder margins and seasonals are supportive to the feeder market, but future break evens using the 2017 Feeder boards and the April/June 2018 Live boards are tough. The CME feeder cattle index is at 149.80. The index is about 10$ under August Feeder futures.
August Feeders critical support at 144.65 also held, to become a launching point for a break out higher on the India export news. The chart clearly points to a test of the yearly highs at 163.50. The yearly continuation chart has resistance at 165 and 170.
Seasonals are strongly higher through June. However, last year saw a May 20th high that was not to be matched for the remainder of the year.
Short term trend for May feeders is higher.
Moving averages are bullish.
Stochastics have a buy signal.
Down Side Targets (Aug feeders)
Support, a Major trend line, and 50 Day MA around 145
Resistance at 163.50 and 165
Major resistance at 169
Our clients now have a large range of positions on, between rolling out to Aug puts to forward contracting the cattle and re-owning with calls. We were able to cash flow the 144 May puts and higher into August puts for those that needed. The 144.65 support held and all of the May clients needing August puts are still waiting. The math works to buy August puts anywhere between here and 169.
I forward contracted my 630 lb calves for 8$ over the Oct feeder board Thursday (5/11), and placed long futures against my slightly in the money puts. May expired and due to the risk structure of this trade, I made nothing, and lost nothing. I bought 160 August calls on the India news for 2.65 (5/31). I will be looking for a signal to protect some of the profit. I have not decided how or when I will do this yet.
We salvaged a little over a dollar of value out of the Feb Live puts and moved to June 104 puts a while back. Since then we spent an additional 2$ rolling up at a 1:4 ration, cumulating in 112 and 114 June puts. The end of April we rolled to 118 and 119 June puts for another 1$ (ratio 1:5). For those that haven’t sold yet, we are riding the 118 and 119 June puts. As with the May feeders, it now makes mathematical sense to buy July or August puts if needed, here or higher.
Aug Feeder chart sourced from RJO Vantage 6/2/2017
July Corn chart sourced from RJO Vantage 6/2/2017
June Live chart sourced from RJO Vantage 6/2/2017
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